Lending standards loosen amid high mortgage rates, slow housing market

Credit availability rose for the first time in nine months and was led by jumbo and conventional loans

Lending standards loosened in November for the first time in nine months as mortgage rates remaining elevated and the housing market slowed further, the Mortgage Bankers Association (MBA) said on Thursday.

The MCAI rose by 1.4% to 103.4 in November, according to the MBA. An increase in the MCAI – benchmarked to 100 – indicates that lending standards are loosening while a decrease in the index is indicative of tightening credit.

Credit loosening was notable in the the jumbo segment in November. Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 3.9%, and the Conforming MCAI rose by 1%.

The Conventional MCAI increased 2.8%, while the Government MCAI remained unchanged.

“Jumbo credit availability saw a 4% increase, as jumbo rates remained more competitive than rates on conforming loans, Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. “Lenders are seeking to capture more volume in this space. Most of last month’s increase came from more ARM loan programs being offered.” 

On the homebuyers’ side, demand for mortgages slowed in November, despite rates dropping after peaking at 7.16% the month prior. Rates have been on a declining trend since that point, falling to 6.33% this week, according to Freddie Mac.

However, the rate drop hasn’t been enough to spur activity among homebuyers. Mortgage applications fell 1.9% this week compared to the Thanksgiving holiday-adjusted results from the previous week.

While mortgage rates are expected to drop lower in 2023, the forecast for the housing market is expected to get gloomier next year.

The mortgage market is projected to slip to $1.74 trillion in 2023 from the expected $2.34 trillion this year, according to Fannie Mae forecasts. The agency expects single-family home sales to plummet to 4.42 million next year after posting 5.67 million in 2022. 

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